Everything’s pointed up this morning. Best to get long and not question the why’s and wherefore’s.  In retrospect, I shouldn’t have questioned the fact that SPX was completing the patently obvious pattern yesterday.

The USDJPY got a sizable bounce off the .786 overnight…

…and should have room to move.

The S&P futures are nearing the point of exhaustion after a huge ramp in the past hour.

The .786 is just ahead at 1635.21, as is the purple channel .25 line.

UPDATE:  9:32 AM

SPX just tagged its .886 from the 1598 bottom yesterday and should at least backtest the yellow midline.  Good place to short here at 1632.41…

…which is also the .382 of the entire move off the 1687 top.  Stops around 1635.

continued for members… (more…)

The futures have reversed big overnight gains thanks to Draghi’s candor and hesitancy to throw the quantitative kitchen sink at the EZ economic weakness.  The eminis, which were up to 1616.75, have settled back to about flat to slightly negative.

The EURUSD hit our target of the white .786 at 1.3148 with ease and is bumping up against the white channel .25 line fairly deep in a rising wedge.  Further gains to the .886 or higher might be in store, but might not be as easy to come by.

The dollar has pushed below key support at the purple channel bottom and red channel .25 line and its own rising wedge is in danger of breaking down.

We covered our short position near the close yesterday after SPX reached our primary target of 1608, but noted the distinct possibility of a drop to 1593.

I’ll play along with any weakness on the opening, as that possibility has not diminished in the least.

But, the line in the sand is about 1605, and I do expect at least a bounce if not an outright reversal.

More in a few…

UPDATE:  9:33 AM

I’ll revert back to the long side here at the channel bottom (1606), with stops at 1605.  Charts in a moment…

UPDATE:  9:45 AM

That was a very quick tag at 1605.19 — close enough.  The key to the upside will be breaking out of the falling wedge, while support is well-defined by the intersection of the two channel bottoms.

I’ll leave the grey harmonic grid up until the coast is clear.  It is motivated by the larger purple grid’s .618 (from 1536 to 1687) which would be expected to provide a substantial bounce if reached intraday.

The 15-min RSI shows the resistance to be expected (white midline) at the wedge’s upper bound….

…while the 60-min RSI supports the idea of a bottom here — with slight positive divergence indicated.  I won’t consider SPX out of the woods, though, until it can break through the dashed, red trend line emanating from the 1687 high.

It’s the daily RSI that should make the bulls nervous.  A break of the white channel midline (dating from Oct 2008) would have dire consequences, as there’s very little channel support until the bottom of the rising purple channel.

The three previous times that RSI dropped through the purple channel’s .25 line signaled the biggest downturns of the past two years:

• the July – August, 2011 plunge from 1343 to 1101
• the April – June 2012 drop from 1422 to 1266
• the September – November correction from 1474 to 1343

SPX has tagged the purple price channel that began at the Nov 2012 1343 bottom three times since then.  Each mini-correction’s rebound was marked by a tag on the purple RSI channel’s .25 line.

This current correction — while about the same magnitude as the others — is the first to show negative divergence.  That is, this morning’s 1605 low is higher than the previous 1536 low, but came with a lower RSI value.

That, coupled with the fact that it already broke down below the .25 line that supported its cousins, should have bulls on edge.

UPDATE:  10:45 AM

From the big picture to the small…SPX has formed several small H&S Patterns that point in various directions. The first two busted, but the latest hasn’t yet.

Suffice it to say the picture remains muddled, and will until a break above the dashed yellow TL (the falling wedge) or below 1605.

But, the harmonic picture points to a test of 1600 (a Butterfly Pattern), so I’ll take an interim short position here at 1610 and see if it plays out.  Stops at the yellow TL (about 1612-1613) ought to do it.

The pattern would bust at 1614.64, though the TL provides an earlier exit.  So there’s 4.64 max points of downside risk versus 20 points of upside (down & back.)  Even at 50:50 odds, I like those numbers.

UPDATE:  11:18 AM

Though SPX is creeping up on our stops, DX just completed a Bat Pattern at the bottom of a well-defined channel.

I’m inclined to give our little short position a little leeway and see how the rising wedge breaks.

I’ll close the long position and go full short here at 1612.64, stops at 1614.65.

UPDATE:  11:45 AM

Here’s an even better entry point — the .886 of the drop from A to B, with stops at 1614.65 just above.

UPDATE:  12:05 PM

So far, so good.  We should get at least a bounce here at the former low, but things are looking good for 1600.  Of course, there is an alternative which I find very appealing.  Butterfly Patterns typically complete at the 1.272 or 1.618 extension.

But, like Crab Patterns, they can extend even further… for instance, the 2.24.  If the 1593.47 price point there doesn’t ring a bell, please see this morning’s first post.

continued for members… (more…)

The market continues to play Let’s Make a Deal with the Fed: keep pumping $85 billion into the banking system every month and we’ll keep pumping prices higher.  Ben Bernanke realized long ago that the game is rigged.  He should know.  He rigged it.

The contestants (the banks) can’t help but win, while the studio audience (the rest of us) squirms in their seats, waiting for their shot.  Enough of them remain hopeful that no one noticed the air conditioning had pooped out, the snack bar ran out of food and the punch bowl was getting dangerously low — until now.

Now, the word is getting out.  And, the audience is very, very focused on that punch bowl.  When it runs dry, we know the contestants will pack up their winnings and sneak out the back door — leaving an untenable situation out front.  What will Monty do then?  Can he risk letting that happen?  What would happen if the entire audience rushed the door?

Stay tuned.

*  *  *  *  *  *  *  *

The futures are pointing south, so we’ll play along on the opening.  But, this morning’s subpar economic news reassures us that the punch bowl isn’t yet dry.  Services PMI comes out at 10:00AM.

The picture was much gloomier overnight, when the USDJPY once again flirted with losing its channel.

The RSI tells the same precarious story:

DX came very close to breaking out…but hasn’t.  It very likely will complete a Bat Pattern first, even if it means another dip below the channel support later tonight.

Even the EURUSD is doing its part…hinting at a Bat Pattern completion at 1.3148 very deep into its rising wedge (also likely after hours.)

UPDATE:  9:35 AM

SPX just reached an .886 retracement of its rise from yesterday’s low, so we’ll cover our short and revert to full long here at 1625.  Stops at 1622.75.

UPDATE:  10:02 AM

Services PMI came in at the expected 53.5 versus last month’s 53.1.  Factory orders grew at 1.0% versus an expected 1.5% and last month’s dismal -4.9%.  The punch bowl just got topped up.  The game can go on — at least for now.

Note the all-important employment index — down to a barely positive 50.1, just like its manufacturing counterpart.

UPDATE:  10:15 AM

Just got stopped out at 1622.72, so back to the short side. Trailing stops.

There’s a Crab Pattern to be completed at 1608 — also the H&S target. But, there’s an argument for a leading diagonal/falling wedge that would indicate support at 1615-1617.  So, we’ll see.

Harmonics traders all just got stopped out when their potential Point C dropped below Point A — the last low at 1622.72.  But, wavers should be fine it this is wave B in a flat wave 4, which I understand is allowed to and frequently does dip below wave A.

Great way to shake out the bulls before a run to the upper bound of the wedge — if that’s what this is.  I’ll likely resume a long position on any strength back through 1622.72, but would much prefer a tag of 1616.24 first.

continued for members… (more…)

Futures are pointing up, the US dollar’s vacillating, the USDJPY got the bounce — could be another positive Tuesday.  We’ll go long on the opening, with the yellow H&S neckline and red midline as our target.

UPDATE:  09:36 AM

Just reached the intersection and will go full short at 1645.55.  The .618 of the drop from 1661.91 is a little higher at 1646.94, so I might be a little early.

It all depends on whether the white or the red channel is in charge.  The top of the white channel is appealing at 1653.53 (the .786), so I’ll take any move through 1647 as a signal that it’s in play rather than the red midline.  And, though there’s room for interpretation, the rising purple channel midline appears to be closer to the .618 as well.

The falling white channel has the benefit of three tags on the upper bound and a lower bound that perfectly captures the 1.618 extension of the initial drop from 1674 to 1640 where it intersects with H&S target (1608) and the bottom of the large purple channel later today.

But, the red channel lines up well with some important reversals as well as the two bottoms made yesterday and back on May 23.   A reversal here at its midline would support its dominance.

Pulling back a bit, it’s obvious that either channel can get us to the bottom of the rising purple channel.  The question is when, and at what price.

continued for members… (more…)

Friday’s close was uglier than we’ve seen in quite some time.  After completing several H&S Patterns, SPX should continue lower.  The question is whether or not it will first backtest any of the necklines — not necessary, but to be expected.  I’ll be looking for the right entry point.

SPX didn’t stop or bounce at any key Fib levels on its way south Friday.  It stopped going down simply because the market closed. So, any push lower will be cause to play the downside — regardless of the extent of the opening bounce.

Once SPX breaks lower, I’ll be looking for opportunities to play the inevitable bounces.  There will probably be several of them; so, swing traders and buy and hold types should stay focused on our ultimate downside target.

UPDATE:  9:40 AM

The index just moved into negative territory.  We’ll short here at 1631.60.  Charts in a moment, but the next potential Fib support is at 1626.54 – 1626.73.

UPDATE:  9:46 AM

Updated 60-min chart…showing the most likely operative falling channel in white.  This morning’s bounce on the opening backtested it, but it was less than convincing.  We’ll set stops at the midline (around 1633.50) just in case.

UPDATE:  9:54 AM

ISM survey and construction spending data is coming out at 10AM.  We’ll see if the market can push through the white midline on the news.  If so, the purple midline and yellow neckline are up around 1644-1645.

UPDATE:  10:02 AM

The data shows continued weakening, which should squelch the Fed tapering talk somewhat.

On the heels of the data, SPX just tagged our Fib target levels, so we’ll play the bounce here at 1627. Tight trailing stops starting at 1627.

Again, the key to sustaining any bounce will be a move back up through the white midline — now at 1633.  We’ll set our objective at 1644 — the purple channel (from 1343, Nov 2012) midline and the broken neckline of the largest H&S Pattern (in yellow.) It would also represent a 50% retracement of the move down from 1661.91 on May 30.

The ISM PMI Index came in at 49.0 versus expectations of 50.9 and last month’s 50.7.  The picture is fairly negative across the board, with employment clinging to a barely positive 50.1 reading.  In short, not the sort of report that would support the bullish economic forecasts being tossed about by the MSM lately — but, exactly the kind of report QE fans were hoping for.

UPDATE:  10:27 AM

The bounce reached as 1637.28 so far.  We just got a sharp downturn back to the white midline — likely just a backtest, a B wave in an A-B-C corrective wave to 1644ish.  But, any sustained push below 1633 and I’ll likely put a short position back on.

No sooner typed that than the index moved through the midline.  I’ll add an interim short position for a little deeper retracement to probably around 1628.07 – 1629.11 (.886 and .786 respectively.)  A move below 1626.89 and I’ll abandon the long position.

UPDATE:  10:36 AM

Just tagged the .786 at 1629.11, might still reach 1628.07.  I’ll set stops here on the short position just in case this is the full extent of the move.

UPDATE:  10:41 AM

Just took out the previous low, so full short at 1626.88.  We should get a bounce at the purple .25 at 1625, also the scene of the red 1.618 at 1626.54.  We came up just short of it earlier.

UPDATE:  10:47 AM

Taking another stab at a bounce here at 1626.   I’ll play the stops a little tighter this time.

Any move through 1625 is cause to resume full short, but I’ll likely pull the trigger a little quicker this time.  I’m disappointed to have missed the top with the last bounce — which didn’t even retrace .382 of the drop from 1661.91. This latest dip, which as mentioned actually tagged the red 1.618, also tagged the purple 1.272 and the purple .25 line.  So, if it can hold 1625, it could be a more substantial bounce.

But, it’s hard to justify from the standpoint of the falling white channel, which already backtested its midline.  So, either it won’t bounce much or the white channel is off a bit.  We’ll find out shortly.

UPDATE:  11:24 AM

Not much of a bounce at all.  Resuming full short here at 1625. Charts in a moment, including where I expect this downturn to finally reverse.

continued for members… (more…)

The eminis completed a nice Head & Shoulders Pattern, but bounced off the neckline… right into a backtest of the broken purple channel midline.

The 60-min RSI chart shows the dilemma: support on the rising purple channel, resistance at the falling yellow midline.

I would normally give a 6-month channel midline the benefit of the doubt, but there have been many incursions over the past week.  And, the bulls know how important it is to hold the line on the H&S Pattern.

The US dollar isn’t a whole lot of help.  It found the support we anticipated at the .25 purple channel line, but hasn’t yet broken out of the falling white channel.

And, the EURUSD’s advance was turned back by the falling white channel as expected, but might have found support at a rising white channel line.

Today’s a big POMO day and the end of the month, so I suspect the bullish forces will be working overtime to keep the slide that the futures are indicating in check.

We’ll wait and see how the opening goes before giving up our long position.  Interim short only on the opening bell.  The SPX H&S hasn’t yet completed, and needs a close below 1643 — the line in the sand for this investor.

UPDATE:  9:35 AM

Got a bounce just slightly past the .236 on the purple grid, so I’ll take profits on the short position and revert to full long here at 1648.  Stops at 1648ish on the long position.

Remember, our long target from yesterday is 1666.69.

UPDATE:  10:05 AM

This morning’s stick save might seem somewhat arbitrary but, as is often the case, there’s a larger force at work behind the scenes.  And, I’m not just talking about the Fed.

It’s a channel, shown in red below, that picks up where the narrower red channel left off last week.  It fits with both the 1687.18 top (the .75 line) and the more recent 1674.21 top (the midline.)  And, now, its lower bound has caught a falling knife twice.

I suspect it will break down Monday.   But, for now, it gives SPX a shot at completing a Gartley Pattern up to our target at the purple .786 Fib line.  It’ll get another test shortly.

UPDATE:  12:20 PM

The red channel bottom survived its second test (a .886 pullback) and rallied to exactly the right place — the white .786 at 1658.78.

This sets up (but doesn’t guarantee!) a potential Butterfly Pattern.  Butterflies reverse at the .786 and extend to the 1.272 or 1.618.  In this case, the 1.272 is 1665.68 — only 1 point away from our 1666.69 target and the purple .786.

We should get a reversal here at 1650.97 (the white .236, to match this morning’s purple .236 reversal.)

UPDATE:  1:41 PM

Just a little warning, here.  SPX just completed a little H&S pattern on the 1-min chart that targets 1643.14.  Stops just below 1651 make sense here, though the .786 is at 1650.57.  So, maybe 1650 instead.

My likely reaction would be to go short for a trip to the neckline — which happens to currently be at 1643.50.

UPDATE:  1:56 PM

Finger on the trigger, watching to see if we get a breakdown through the .786 (1650.66 or 1650.06, take your pick.)  This is an obvious potential trap — the .786 Fib vs the H&S Pattern — so we’ll wait and see what happens…

UPDATE:  2:11 PM

Pulling the trigger.  Going full short here at 1650, targeting 1643 — but tight stops, in case all it’s doing is tagging the .886’s at 1648ish.  The move really wouldn’t confirm until a break of this morning’s low at 1647.62.

I show the larger H&S neckline at 1543.74, a little lower than my forecast would indicate the cross will occur.  In other words, this is probably either a deep retracement designed to stop out the bulls or an intra-day neckline tag designed to stop out the bulls.

UPDATE:  2:43 PM

Got the purple midline tag, but not quite the neckline yet.  Remember, it need not stop on a dime.  Some watching the neckline will expect it to keep going (it could!), and a little overshoot isn’t uncommon.

continued for members… (more…)

The USDJPY pulled back from the brink, EURUSD is trying to make the best of the dollar’s momentary vulnerability, and stocks are wondering whether (if bad news is once again good) this morning’s data is “bad enough.”

We’re watching to see whether or not SPX’s drop at the end of yesterday’s session completes the wave higher.  A push back into the rising channel would be reason enough to play along on the upside.  The Inverted Head & Shoulders Pattern completes just above at 1654.54 and targets 1667.

I’d be more optimistic about that scenario if the EURUSD could break out of the falling white channel…

…or the USDJPY could climb back into the rising wedge.

UPDATE:  9:46 AM

SPX just poked up into the rising channel and appears likely to complete the IH&S targeting 1667.  Going long here at 1654.

UPDATE:  9:55 AM

SPX just completed a little Gartley Pattern at 1659 with 5 identifiable waves higher.  I’ll try going short here and see if we can get something going on the downside.

I might be early — the IHS target is still 8 points away. And the gap SPX was trying to fill is technically still open up at 1659.76.  Our primary target yesterday was the .618 Fib at 1661.16 and the smaller scale (gray) .886 is at 1660.22.

I’ll use fairly loose stops — say 1662ish, as we also have a confluence of Fib levels at 1660-1661.

The larger traditional H&S Pattern we were following yesterday would have equal left and right shoulders at the purple channel .75 line — currently about 1662.  But, 1659 is close enough.  The neckline is back down at about 1642.

As we head back down, I’ll be watching for a bounce at the IH&S neckline at 1655 – also the midline of the revised rising white channel.

UPDATE:  11:00 AM

Got the bounce at the neckline/white channel midline as expected, flirting with higher.

The RSI picture suggests that a push to 1661 or 1667 is a good possibility, so I’ll probably take an interim long position with any strength through 1661.

continued for members… (more…)

Lots of red out there this morning.  SPX just retraced .886 retrace of yesterday’s spike higher – a good place for a bounce.  We should get a bounce here, but keep an eye on the primary target: the purple channel midline, currently around 1642.19.

UPDATE:  10:00 AM

SPX just bounced up through the falling purple midline at 1650.  I’ll play the bounce here, with tight trailing stops.

This could be a bounce to further establish the falling red channel’s upper bound at 1658-1659, but you never know.  It could just as easily be a simple backtest of the falling purple channel midline — hence the tight stop.

There’s a tiny potential IH&S setting up that targets 1660 — the confluence of the .500/.382 retracements and a quick gap fill.  But, there’s also a small rising wedge here…

UPDATE:  10:23 AM

Stopped out on that little move, so back to full short.

Next stop should be the big purple channel midline.  It looks like 1641.85 on the 60-min chart, which is so close to the pink .886 at 1641.14 that I’ll use that as my target.

The big question, of course, is “then what?”  I did a lot of charting last night, and found some interesting patterns in the currencies [see: Update on USDJPY] that might shed some light.

continued for members… (more…)